E121: Macro update, Fed hike, CRE debt bubble, Balaji's Bitcoin bet, TikTok's endgame & more
01:34:29 Share

What eating freeburg .

is at buffo.

jack, what is.

is the way? Look at this. There are branded .

posta OS. Aren't .

these the .

best postage? Us.

these guys are. So, Richard, people peel their nuts. People have been dealing my nuts since the facebook. I feel.

We source to the fans and .

just got easy.

Hey, everybody, welcome to episode one hundred twenty one of the world's create podcast, the all in podcast with me again, of course, the dictator himself from off pilot tia. The sultan of science, David freedman g and the rain man himself yeah, definitely David. Sex, gender, you doing .

the world's greatest january lector stright.

the worlds greatest moderators here, this, you guys, I gotta take up the grip is on a lot of corporate gigs for me to moderate. I don't even have to prepare to show up and moderate.

So great. What is an example of such, such a gig?

There's a lot of corporations and conferences that pay a pretty penny to have the world's greatest moderator common interview.

This is like the used car part association of amErica having a comment I did won .

with like a thousand litigators at an attorney conference for like the last over they all use and I was a wonderful first side. You know, it's great. This is like the graft is do you have .

to fly commercial? Where do they fly private?

It's commercial at this point.

What what is your right to say what kind of for spice? So I do not have .

them feel my nuts. No, what I do is I blend the travel costs into the speaking fee and then nobody knows when I in around what will tell him saying whatever. Basically, i'm back on the road. fox.

I'm back on the do. No.

no, no. What he's saying is, no, what he's saying is he gets to twenty five hundred dollar travel budget and instead he comes the day of and leaves the day of saving and letting himself an extra twenty five hundred.

You know you can optimize if you're saying optimize, I did use I had you know, during coffee, I I racked up a million and a half two of these united points, and I have just been providing those united points down. So shout out to united and the pandemic. Alright.

just a lot of news. You say your right. Mos, even worse than that.

even them for travel expenses, when he's not paying anything, maybe you just cash. P ud.

what? I mean, that hand, but reportage, I mean, it's a work of art. But we gotta start with the fed hiking rates by twenty five basis points, uh, and the general feeling in the country that maybe the fed doesn't know what they're doing and maybe it's time for regime change.

The fed, the increased rates by twenty five basis points yesterday, wednesday. So the fed has increased the federal funds rate from nearly zero in march of twenty twenty two two. Now the range of four point seven, five to five percent fast rate hike since the seventies.

Speculation to fed my pause, retakes, we're even cut, do the the recent banking failures didn't happen. So if you bet that they were gona pause, you were wrong. And if you bet they were going to cut, you were also wrong.

But the market has ripped a bit a day after which people are trying to figure out in the group chat. Doesn't think like anybody has a theory here. But let's start with sax, maybe an explainer a little bit on how the fed works.

There's a bored there. People serve a fourteen year term. I guess they replace somebody every two years. And drome pal was placed in twenty eighteen by trump. And I guess there's a lot of hand ringing now that they were laid on inflation, obviously, and then they went too fast and maybe now they're not slowing down enough. So what should take on an objectives sex, putting aside partisan and you this administration versus that administration just objectively, do they know what they're doing and how could they do a Better job?

No, I don't think that what are doing, they clearly reacted way too late to the inflation. We've talked about this before. We had that surprise inflation print in the summer of twenty, twenty one, five point one percent.

They said IT was transitory. They didn't react until november. They continued Q, E, for another six months. And we've suddenly got a hawk. Ki, ian, a member of twenty twenty one, and I am start the first rate increase until march of twenty twenty two. So they were really asleep at the wheel and late to react to the inflation by about nine months.

Now I think they're potentially making the opposite decision, which is they are late to recognize what stress and distress the economy is under right now. And Powell had there was three choices they could have made at this meeting. They could have raised rates, which is what they did.

They could have cut rates, which they did, or they could have done nothing, but they help pat. And the argument for raising rates is just that, what we have, the inflation problem, we need to keep raising interest rates until the rates are above inflation, and that will bring inflation down. Then you can start to lower rates, that sort of the conventional view.

I think the problem with that view is IT ignores that we've just seen a run of bank failures and there's tremendous stress building up in the banking system from unrealized losses on long dated bonds, also realized losses on commercial real state loans. And we've barely scratched the surface of seeing that problem. I think the next shoot to drop in this whole thing.

So I think that the right decision here was to either cut rates or to stand pat. You may have seen that elon said, listen, wish, be cutting rates here. There's way too much late sea in the inflation data.

The economy is seizing up and we don't need to raising rates right now. We actually be cutting up. I think that probably if for me looking at the upside, downside, these decisions apply what you to stood, pat, because again, we've just just seen the banking crisis.

Why when you just wait one month to see maybe there is lining in the inflation data, maybe the banking crisis not over. Why won't you just stand up for one month? You can always raise rates in a month. I think that this move here could, in hindi pcn, as the straw that breaks the camel back trouth.

would you have paused and waited to see another card and and then watch the hand developed? Or do you think they're doing the right thing by raising?

Or should they have cut? I think they did the worst thing possible, which is they took the middle path. If you think about what the fed has the ability to do, they obviously have the ability to raise lower interest rates. But what we don't talk about is they have a baLance sheet that can absorb assets. For the last ten or fifteen years, we've had a phenomenon called quantity ative easing.

And for folks that have don't understand what that means, that is essentially the federal reserve buying assets out of the market and giving people money for IT so that, that people can then go and buy other things with that money. Last june, they started what's called quantitative tightening, which is essentially reversing that policy and restricting the liquidity in the system. So if you look at those tools and you sort of play a game tree on what the fed could have done, I think that you have two choices.

One is you massively let inflation run a muck where you have no tools to fix or you have massive illiquidity in the financial system, but you actually do have tools to fix that, which is through some combination of quantity easing and tightening depending on how much liquidity one of the system. So I think actually I disagree with sax. I think they should have done the opposite.

They should have raised fifty bps. IT would have created a little bit more chaos in the short term, but IT would have set us up to understand what was fundamentally broken and still give the federal reserve the ability to use their baLance sheet and use liquidity in the future. To solve the problem, they took the worst option, which is neither did they cut nor did they raise enough.

And so this problem that sex represents actually is the fundamental problem now, which is you won't have enough clarity and signal to really know whether this twenty five basis point enough. Look, i've maintained now for nine months that rates are gonna long higher than we like and longer than we want. And so I think it's high time that we acknowledge that we have a sticky inflation problem.

Who's back we have to break. We've known since Walker era what we need to do to do that, which is you need to get interest rates to be greater than terminal inflation, which means that a five per cent fed funds rate is insufficient. So we're gna need to see a print of five and half, five point seven, five percent, and that's when you're gonna enough contraction and then the fed can come back with liquidity. But if they don't take these steps, we're gonna be in this very choppy, neither here, neither their situation. And I think that is what causes the real damage because it's the corrosive effects of uncertainty and what that does to lending tourists taking, and I think is really .

bad with the economy free. But where do you land? We have sacks saying they should stood pat, which not saying, either go hard, take the medicine.

I I like an economic judging the baLance that they are turn away right now. I think everyone's got a different you you can hear A A coffee y of opinions on this one. What i'm more interested in is, you know, we talk a lot about the banking crisis underway, and I know we're going to talk about this question on commercial real state.

And I know, but if you look at the yield on the ten year treasury, I think i'm coming out of this past two weeks, you know yield ld on a tenured treasury drop from four point one percent down to look like a close to three point four percent today, nearly a point seven percent decline in the past two half three weeks. And that's also off of three point eight percent since the start of the year. And remember when we talked about the impact on asset values of banks, I think if you look olliffe ally at the roughly seven trillion dollars of assets held at bags, some, you know, whatever the the set of banks are.

that we looked at the average .

kind of equity ratio OS about fifty percent. So you know, a two percent or sorry, three percent adjustment over ten years on the treasury impact the value of a chunk about portfolio down twenty five percent, which starts to put you at the dangerous territory. And there is obviously distribution of what that does to certain banks that are overweight, you know, ten year bonds, whether their loan obligations on mortgages or treasuries or corporate bonds or real estate bonds, a real intent.

And so the more encouraging point that I think we should pay attention to is does the market tell us that is short term rate actions driving down the long the medium and longer term rates in a way that will improve the baLance shoots of all these institutions that owe a lot of his debt, particularly the banks and and funds and so on? And you know all the math are quick, but just in the last two weeks, the impact on the tenure treasury has probably had a pretty sizable impact. You know we talk about unrealized losses.

It's reduce those unrealized ss ses. It's improve them. So I think that, that's like the more important metri C2Be tra cking is, you know, if you look at all the assets that we're all worried about right now, are they going up in value or down and value in a way that introduces more stability into these kind of banking systems that we care about? I think right now, IT looks like maybe things are improving um and that might be part of the optimism around equity markets and folks buying.

And yeah and so this is, I guess, where people have started to talk about make sure the drop we obviously had .

this time base liquidity .

issues with slow king valley bank. Now the world street journal is talking about commercial real estate and how much debt there is since COVID. Obviously, people are doing more remote work.

A lot of the skyscrapers is not a safran cisco o, but in many locations remain empty or under ual zed. People are now having their leases come up every year. More and more of these leases will become vacant, and then we'll see if these buildings are worth what people paid for them.

Smaller banks holder around two point three trillion, and commercial and real state debt, including rental apartment mortgages, almost eighty percent of commercial mortgages are held by banks, according to this world street journal story. That you are an owner of some commercial real estate and you play in the space, you have a lot of first time knowledge. What what is your put inside your persons holdings or exposure? What is your take on what you're seeing? What is the game on the field right now in terms of commercial real estate and services going beyond?

Well, if he talks, the commercial will take guys theyll tell you that the situation is dire. The dire. There's two problems. First, there's a credit brunch going on. So there's just no created available.

If you're commercial real estate developers red of a building and you want to refinance your construction loan or put long term debt on a building, you just can't do IT. I mean, the banks are not open for business. They literally don't want the business. And I think that comes back to the fact that banks right now are honker down and defensive posture. They're seeing deposits flea from their banks unless, of course.

you one of the top four is that freeze on the banks pre date the silicon valley bank crisis. And I was exhausted, ted, where people having a hard time getting loans before .

that IT predates IT. But definitely what you what you saw with b and these other banks, including credit swiss, is that you know banks now are getting much more paranoid. And that's why you saw that if you look at the the discount window, which is when the banks go to the fed as lenders of last resorts and basically post collateral to get liquidity, we had the biggest Spike in discount window borrowing since the two thousand financial crisis.

Yeah, that line on the right side, that is, that is a Spike in one we expLoring. This exceeds anything that happened in two thousand and eight. The warning signs should be flashing red over something like this. Now to bring about .

to clear that banks who have real estate exposure going to the fed, going to the government saying, hey, can we get some money to cover these?

It's not specifically about real estate is more about bank liquidity. The banks are saying we are enough liquidity right now to cover our needs, which are highly vultu right now because basically, deposits are moving out of community and regional and small banks into the big four so called systemic important or sip banks. So what's happening is that, again, banks are hankering down.

They're getting very defensive. They do not want to make new loans because they can't tie up assets. They are trying to stay liquid themselves.

So that's what's happening now in sort of with respective new lending. And then on the other side of IT, you have existing loan portfolios. There is something like twenty trillion dollars of commercial real state debt.

And most commercial real state lending is done by small banks, by community banks. So they are sitting on these huge theory loan portfolios. And I think something like three hundred billion needs be refinance or is coming due in the next year.

Normally that rolled over refinance. There was separately, there was a study showing that unrealized losses in these loan portfolios in the banking system may be around two trillion dollars. That was a study that was report on by the wall street journal. So in the same way that we had huge unrealized losses in these long dated bonds, I think we also have .

actually valley bank specifically.

That's where the offender is a mic problem. I think similarly, we have huge unrealized losses in commercial real state loan portfolios. And this is, I think, even a more subtle and principle problem because with securities like tea bills or mortgage bonds is very easy to know what they unrealized losses are.

The reason why they hadn't realized losses would not cause IT into what they were is because of a stupid accounting rule. That said, bit in have to realize the losses if they were quote and quote holding them to majority with these long portfolios. We don't know how big the exposure is, and we won't know until you started seeing some defaults and repricing of assets. And the act state is a much more dynamic market.

right? You have to have a buyer there, you have leases. You have leases coming off at different times. You have sub leases occur in and you have the owners of them flipping them right and and refinancing them constantly to buy new buildings.

And so right, those loans are not as liquid, right with a mortgage bond. Those are basically a bunch of loans, mortality home mortgage typically that i've been package up and turned into a security and there's a liquid marketplace to trade them. In the case of these loan portfolios, there may not be a liquid marketplace. So you don't really know how impair that loan portfolio is until you actually .

get to a place where when we that's the thing i'm wondering. I saw a lot of headlines of pinches bought themselves out of their new headquarters in the bay area. And A Y specifically, I heard facebook got rid a couple billion dollars and wrote down some expansion.

Amazon is selling buildings. They had got a ton of buildings. And we saw last week they get rid of another nine thousand, and they are planning another nine thousand.

And if and they can get people to come back to the office. So how bad is the overbuilt, I guess, is the question, because that will be the driver of the value of these buildings. Could if there is too much supply than what are these buildings actually worth that they worth nineteen oyster square foot. But if there's no of one .

more space you can see in the credit falt spreads of these banks, it's in the water table already. So you can nick, you can just throw up if you look at any bank that's lending and that has a portfolio, this is doctor banks, you euro denominated C, D, S. But it's the same for barkley, is the same for socket, is the same for a bunch of american banks.

There is a risk in the system that sacks articulated that is now getting Priced in. There are all kinds of loans whose payments, which the banks need can not necessarily be ensured, which means that then there could be illiquidity there. There could be a flow of deposits out from those banks, which would then make their ability to pay their dead holders is lower.

You also have this complicated issue already where it's really like the first time in a long, long, long time where dead holders actually got wiped out in the credit swiss tobacco before the equity holders did. And that created all kinds of rip effects. So this credit bubble is here, and it's being manifested right now in these very sophisticated parts of the market.

And eventually, they'll ripple to the broader economy at large. But how a person feels this is they're not going to be able to get a car alone or a mortgage or the interest rates they pay will go up. And then how bond holders will react all of the stuff is just start to find different assets, probably the front end of the curve, money market, cash, gold, and we'll just abandon on all these assets. And then the other problem is that it's just really, really bad for risk asset. So the things that we investing .

startups, technology.

either in the world of inflation, run mock because the fed is in hiking fast enough, which just destroys future cash alles, or in a world where the fed pivots in a moment like this and make you can show the second chart, both result in the same outcome, which is that you just see these massive drawdowns in the value of risk assets. So we're a really complicated moment.

And this is why I think, again, the fed needed to take leadership this past week and actually do the hard work of either cutting fifty bps or raising fifty bps. And this middle path is the absolute worst path because trying to thread the needle in this complicated economy, I think, is just going to be impossible. And then what happens is then the markets move around them, right? The markets have completely said, we now discredit what you did. And they're basically banking that the fed will be forced to cut rates massively in short course because the crisis will be so severe that is no outweigh the risk of inflation.

Think about that. yeah. So all of this real state comes on the market. There's no buyers for IT. The mortgagees are due.

Does that mean a commercial real estate owner just basically get for closed on in the hand the keys back to the bank or the banks, as this mostly journal story was sort of alluding to, that the fed will say, you know, what will to extend, will back stop this real estate, which happened in the last bubble? And we hope that over time, IT works itself out and demand returns. Now of course, that's different than a post coffee world. So this time could be different. What happens in the case of twenty, twenty four, twenty twenty five, all these office spaces are returned and the keys are handed back.

Yeah, so okay. So suggest you ask a question like how how does this problem manifest? Me describe from the point of view of that real state owner, there's basically two problems.

One is that you have a tenant who's in a long term, least five, seven, ten years at least roles, so that at least comes due now they don't need the space anymore. You know, we know that takes them for cisco, which has got to be the worst market for syria in the country right now. That sounds like thirty to forty percent of the space is vacant.

So that's either space for rent or space for sublime because no one's using IT. So they put IT back on the market. Well, all those sub leases, they're still paying rent because they're a contract.

So what happens is as those leases role now of the sun, you not pay any more so you're going to stop. Or if you're still in the space, you're going negotiate a much, much lower rent. So now of a sudden, the real state owner can make their death service cover ratios. The incomes of in the building is this substantially less they can .

make their death on that and explain that ratio to folks you have a certain amount of debt you own, let's say salesforce hour in sales force this case, they're subtly seeing one hundred twenty five thousands were fed. Let's say they were into that for five hundred million. What is this debt service where you explain that to the audience?

When the bank and rides the loan, they just figure out the interest. You've tt a pay on the loan really to the value the building are, the income that is generating. But all those racial s are upside down now because the value of the buildings are rent has gone down so much because there's so much vacancy. I mean, when these loans were under written in, S, O had like a five percent vacancy rate and now like thirty to forty percent, there is just no tenants. And then you know, in parallel with that, Jason, and you've got all these cases where you only have tennis or releases rolling, you have loans rolling.

You know, again, if the owner of the building has either construction loan or like a long term debt, and that needs to rule they after refinance IT and if they can even get credit, which they may not be able to because this grunge they're going me paying a lot more for IT, all of a sudden the income state room for that building doesn't make sense. Think about your borrowers are higher and your revenue is lower and all of the buildings underwater. So where does that end up? Well, they default the debt and the bank ends up earning the building.

So then what happens is you end up with, you know, all of downtown service co. On by a bunch of banks. What are they going to do with? They don't want to be in the real state business, so they have to fire sale those buildings in a bunch of auctions at rock bottom Prices because, by the way, there is no casual liquidity out there.

So who are the buyers? No buyers. We have thirty percent renters.

So so what happens detroit like is that just like a debt city.

And then the tax base collapse of the city because so much the tax basis, depending on real states. So listen, I think they're going have to work this out. I don't think they can just let the free market take its course here because you're going end up with the thing I just paint IT. So I think what hopefully what happened maybe is that the banks do some sort of deal with the real state on earth that you know they blend and extend whatever, but in order to do that are .

going need to be backstop by somebody. And that's the fed. That large real is to square foot, right for class a sex in the city. Was that the Price?

Where is that going to be? Nine box of fu, depending on what kind of building you're talking about. I mean you have all these empty office towers so look I I never invest in office towers.

I do small blue tea kind of brick and timber spaces and um Jackson square, we're doing okay because people still want to be in those spaces. But these office towers on market street or in soma, I mean, which is where all the investment went during the boom, nobody wants to be in those buildings anymore. And IT doesn't help that the city has allowed this giant, you know, OpenAIr d rug m arket t o m eta s ti i s r ight o utside t.

heir d oor f reeport y eah I t hink i t's i nevitable w ill h ave p robably t wo t o t hree t rillion d ollars o f f ederal m oney y ou k now s pent a b ackstop a nd s upport t he a sset. I mean, that's the general theme here and kiss everyone isn't paying attention at home is that the said the U. S.

Government will continue to print money and create programs uh to effectively support asset values such that there isn't a crippling economic ripple effect and this is the dangerous of debt spiral of dead. And that's why I always talk about how concerned I am about global debt levels and particularly det levels in the us. But really global debt levels, i'll say this statistics again and over over again, three hundred and sixty percent global death to global GDP. But you know, even within some of these asset classes, a significant amount of debt has been used to fuel asset Prices and to fuel equity value, and the adequate value gets levered and reinvested. And so the replying effective in the economy of declining asset value can .

be magnified through leverage and IT.

Unfortunately, debt in general forces growth without growth. Uh, debt fails. And so when we use that to demand growth on a macro o perspective, uh IT causes you know significant stress and strain on the system when you're going through periods of like we are right now, which should be natural recessionary effects from covey and judged economy or natural asset Price declines because of that.

And we can't let that happen because if I were to happen, the rippling effect would be crupper. So this is a good example. You probably I don't know what the facility look like.

Maybe the government passes some congressional bill that said, hey guys here, three trillion dollars to support, you know, all this real estate. Here's another, you know, two trillion to support banks and you know, giving them liquidity. Because the other problem, as you guys know, is most people's most of the population in the U.

S. Has moved to their assets are their asset value, their equity value in their home. And those home Prices are supported by residential loan programs.

And you know if you actually uh, have a massive right time and the value that as a class, that's when you know any kind of all the part. So you know we will continue to be booed by that that that that kind of inflationary behavior. Unfortunately, ology, I think has IT right will talk about a minute that there has to be money printing to get out of this whole.

I don't know if it's necessarily in this moment, hyperinflation areas. He predicts, you know, he uses the dotted mark and the wimmer republic as this kind of story line that this is what's about to happen in the U. S.

The truth is that looks a little bit more like the pound stirling at the end of the british empire where you know there's certainly a uh an inflationary and evaluation effect that arises, but it's not IT is the reserve currency of the world today. And so it's really hard to say it's going to be hyperinflation in the world. zero.

So that seems to be .

the the dollar of the door.

yes. yeah. So that seems to be the bed.

Now try of that. Some folks are predicting catastrophising. Hey, this is the end of U.

S. supremacy. The end of the dollar, of course, modern monetary theory seems to stay. You can just keep printing dollars to make couple trillion dollar coins of backstop IT. And by the way, tarp was profitable modestly for the united states, and the backstop of real state totally work. So where do you land on this? You think these backstops and modern monetary very stating that you can just print money, you you on your own fear currencies going to work, or as we pave IT to the billion dollar, but sorry, the million dollar pology bitcoin that that this is the end of this.

I I think it's not the end days, but I I think you are conflated ing a bunch of things together. So look, M, M.

T was.

in hind sight, ioc, in the moment, IT never quite made sense, but in hindsight is clearly idiotic. and. I think that we can properly dispense with that.

But the reason that we print so much money is sort of what freebies cities, which is that we just want a well functioning society. And the simplest and shortest way to do that is to make sure that there aren't any winners and losers anymore. And the most effective way to do that in the markets of with money, print a bunch of money, and there are no more winners and losers.

And so everybody can kind of win. Some people may may win more, but nobody really ever loses. So I think that's the that's the M O that we're Operating under. The thing is I know something .

unhealthy to natura mothy.

You're sort of a losing to no losers that's a more philosophical and a commentary on capitalism and a bunch of other things. And you're right. I don't think that makes sense.

I do think you need winners and losers to really make society function well, but the other part of that is, like, does IT reinforce or does IT decay U S. Dollar 和 gen？ And I think that actually reinforces IT.

And the reason is just very practically speaking, when you look at how dependent other people, other countries are on the U. S. Dollar in times of stress, they actually become more dependent. And that has a lot to do with their boring patterns, the amount of dollars central banks need outside the united states.

And so what did you see in a moment of stress? Actually, the fed opened up swap lines to all the central banks that they work with a their most important Operating partners of europe, canada, japan, eta, switzerland. And they move the liquidity window from weekly to daily.

And they pounded the swap lines. So I don't know. I think that most people that that kind of like it's like a boy crying wolf.

Maybe at some point somebody will be right, but you're gonna lose so much money. Trying to take a point interview around this topic that is more practical to just look at dollar flows. And dollar flows go up in moments of stress, not go down, and they go up in a distributed manner across the monetary planning .

at the world, right? So let's explain the biology bat since that trend. And he is the boy pop, as you're saying, cried wolf this past week.

Cry bitcoin. Yeah, the boy by the coin very well. Ve .

said so.

Uh, friend of the pod. apology. On march seventeen, s predicted that bitcoin will reach one million dollars in ninety days due to U.

S. Hyper inflation. Hyper inflation is defined as Prices going up fifty percent month over month, just so we're clear on exactly how dramatic that is.

He made the bed on march seventeenth against a zuo anonymous, a twitter user, James medlock, who said they would bet one million that the U. S. Would not experience hyperinflation. Biology sort of inserted bitcoin internet that IT wasn't a bitcoin. Bh, and I think he's done two of these bats.

So he's betting two million in total on big one, hitting one million by june seventeen, which there is probably no chance of that happening or a very tiny chance of as the panel in a second bitcoin was trading at uh, twenty five, twenty six thousand at the time, is now trading over twenty thousand. And pology has been on every power has known to man in the less seventy two hours. Talking about this, i've watched one or two of them and it's a pretty out there argument.

I think, uh, you can just type in ology on youtube and watch any of the twenty done h he believes regional banks are involved in. He thinks the fed need because onna need to print a massive amount of money like we've said here, two more QE and then cut rates all seems reasonable. But that .

that will .

lead to hyper inflation is not reasonable. They are going to cut rates. We just discuss they're eventually cut rates and they'll be more cute. So that part is reasonable, just that one little piece but then he believes is the part that is kind of out there that hyper inflation is going to devalue the dollar.

And this is the time um he does not and I made a bunch of I em is a bunch of times and he would not be honest about IT uh or didn't want to answer my question and I said, hey, what percent tage are you in bitcoin? Somebody says he's ninety nine percent in bitcoin. He will not confirm and so I like, well be on a thousand big coins if this goes up you know, a very small amount for five percent, you're going to pay for the beats.

And are you talking your own book, you or not, sex? What do you think of this overall? Bad is at a stun. Yeah, he's saying, like this is the lifeboats moment. And just add to IT, he says you have to leave the united states and get to singapore uh or a place or if you're gonna in the united states, you need to get to whaling or taxes or somewhere that explicit lows by coin because the closure you are to the night banking system.

What happened to so on? Valid bank on that faithful weekend where people couldn't get their cash and we're going to have to this payroll he says that's the dry run for the entire U. S. Banking system. sex.

So first all, I don't think you can disparage bulog because someone who cries wolf says this repeatedly and makes a dire prediction repeatedly and is wrong. And we can't say yet that ology is wrong. Do I think that we're going to a million dollar ninety days? I personally find that very unlikely, but you can't say yet.

He stuck his neck out making a prediction that will be easily falsified if he's wrong. Second, the last time that ology made a dire was cove IT, and is right about that one. So you can say that this is just like a dumb who throws out crazy predictions and is always wrong.

He's actually pretty selective about him that one predictions yeah there is a tweet from january thirty eth of twenty twenty in which he basically predicted a pandemic based on a chronic virus and laid out a whole bunch of consequences that mostly came true, which is why we're talking about this. This is not just some like ring a person like he actually has. Yes, Peter gory and a track record. Here's my view on IT.

They can doman glue .

him in the seam to lab. The two of our opening speakers. I thought it's summer twenty three. Those are we are book at speakers.

Look, anyway, so so, so look, now what do I think about IT? I post my own theory today, which I would call sort of ology light, which is okay. Look, if if you think about the spiking integrate that we've had and that why should continue quite bit longer, there are three main effects that is in dispute.

Te has, number one, undercuts the value of long data bonds. Number two is made lending much more expensive, particular for big purchases like real state. Number three is increased government lending costs.

Okay, now play that through the financial system. What does that mean? Well, if the value of long date bonds has sharply decreased, well, that lead to this banking crisis with the unrealized losses that really happened.

Number two, it's made lending more expensive. The credit for unction theory, where we are able to see that, and I believe that's gonna play out as a second crisis of this larger financial crisis. And the number three is the increasing government borrow ing costs that will eventually play out in terms of being a government deck crisis of some kind.

And I think it'll involve, you know, a Spike in born cost. The federal level involve sovereign dead issues internationally. I think that will involve budget deficits at states and cities. So I think there's three phases to this financial crisis. We're in phase one.

And I think theory and government dead the next two phases, and I think I think a lot that lines up with apology thinks where I disagree with him as I don't think we can know what's going to happen in ninety days. I think that the theory crisis is highly deflationary, is gona create distress everywhere in the economy. That is going to be tray, massive reduction, liquidity.

I think that the government deck crisis, assuming the government wants to inflate and monetized the debt as a way to solve that problem, that will be highly inflationary. But when these things play out, we can't know. I think that what makes us really hard as I think, jumping all the way to the sort of finish line and saying we're going a million or big coin in ninety days because U.

S. Dollars worthless. I think that's premature. I think this could play out over the next couple years.

We have a real problem if bitcoin is the exit gram more in inflationary crisis because if it's not accessible enough, it's not easily transaction for for i'm sorry to be negative to the bitcoin maxim lists. I'm generally in favor of this kind of independent storage system um that outside of government take control. I think there's just this unfortunate reality and we saw the wealth's notice to coin days today. They just uh arrested that .

the crypto guy go on was arrested in ago.

Great country crack, let you wire money in around, as I think, monday or tuesday. And so you know if it's clearly becoming kind of a less accessible system of storage? No, what's more accessible? Well, I do think that one of the reasons were seeing the market move the way that does is because folks are shifting the risk as that's around quite a bit right now to figure out where is a good place to put money.

I was talking with a asset manager you know this morning and you know they had a very strong point of view. Foxes are moving capital away from what they think we're going to be most impacted by the risk of this kind of massive inflationary event that may rise or this massive banking crisis that may rise or this mass of really take crises may rise. And there are other places to then put your capital.

That's not just that point. And sure, maybe some of these things are dollar dominated. But for example, there are many businesses that sell products in non dollar genomic currencies globally.

And while they report and trade on U. S. Market changes, are buying a security interest in a business that generates most of its income, referred referring to many different companies. And so there are many companies that get the bulk of their revenue, the bulk of their sales internationally. There are also many companies that will benefit in an inflationary environment.

Businesses that are tied to other types of real state businesses are tied to certain capital equipment where consumption will not go down unless, as you significant, massive, you know, global social economic c. And so I think that that's kind of a lot of what's going on right now. It's less about hate bitcoins, the only place to go be safe.

And it's more about let me reallocate my risk assets a little bit. You know, the places that may be benefit may benefit from or may be Better guarded from a massive kind of inflationary shock. One more thing, I I think one of the biggest risks that is not being talked about is the dead ceiling vote that still june.

In june, congress needs to pass. An increase in the that ceiling because the amount of debt that the U. S.

That the federal government is gna have to take on in order to meet our budget deficit and refinance our debt and pay our obligations historically means that we're gonna have to have more than what were, uh, you know, we've approved to date in terms the total amount of debt. Now this has historically been a last minute vote, you know, crazy, dramatic thing that drives markets and nuts. The hill had A A public opinion piece from a Peter work and marry space. But I think they make a good point. You i've talked to a lot of folks who are called red in the fixed income market, but also folks are in the equities markets publicly who are pretty nervous about the start ceiling vote.

And if IT does look like the republican uh party takes a very hard line and says because this is the current party line, if you don't agree to massive deficit cuts or spending cuts are in and and really committed that um in a bill that we can pass the ban also approves the increase of the debt limit, we are knock to approve increasing the debt limit and you know what this opinion peace argues I think is a very good medal. The line solution which is you know come up with points of view uh and actually document those points of view on um making sure that government spending is effectively accountable, but there is no more wasteful spending and that there are certain programs that both parties can very quickly agree to as being you are very wilful. And if you start there, you maybe get enough across the line that both parties kind of say this makes sense, like to do this, and then we can kind of increase the debt limit.

Because in the absence of that, the U. S. Will have to default on death. This is always the big threats, never happened. And if that happens or there is the looming threat that happening, combine with the banking crisis combined with you know, the the the liquidity crisis combined with the real estate crisis that may be book emerging here.

let me ask your question .

that you could have melt down. So look, and I think is the biggest like, black song is a like song, and this is the biggest of elephant. The room right now is, and I think, and sorry, I think if people in dc could get together today, and if you could, instead of doing the typical last minute twenty four hour vote a day before the dead ceiling needs to be increased, this could be addressed today. IT could start to put in some of the layers of backstop and coverage and protection and safety that the markets, I think, really need the man of the trapeze ation in in, in the weeks and months ahead.

I wants to job to the cypher crackdown and get your opinion. That s but I wanted to a clarifying point with freeburg. You have in the ray olio end of embers empire collapse and that, hey, maybe the us.

Is winding down its supremacy and pology was pretty much saying, yeah, this is the moment. Where is there any light between your position of, like, pay dolius s correct. This is the end of the empire.

Emo logie, like, it's the end of the empire right now. Where do you stand on that driver? So I mean.

i've always i've been concerned apology as this for like three years, and i've obviously promoted this book for two half years. And delicious points of view with lots of kind of empirical le wisdom behind that I think indicate that the U. S.

Is on a path in the way we spend, on the way we behave and the way markets are reacting. That indicates that a lot of what has happened historically, happening now in the U. S.

Now IT doesn't I? I don't know if it's .

gonna happen overnight. That's where I would have light with pology OK. The notion of kind of hyperinflation, again, I think, means that about all the U.

S. Dollar holders around the world, IT would be a shock for the collective system. IT would require the collective system to collectively agree to get off the dollar very quickly for that to really happen.

yeah. In the meantime, I do think there will be inflationary effects. I do think there will be massive kind of asset value shocks, but i'm not sure there's going to be this kind of like why are republic to much? I got a hyperinflation thing because that is the reserve currency.

And IT is so widely held by everyone, IT would require collective giving up IT also seems like there maybe, you know, we talked a lot about the petro you on trade, which I think this is critical to see that actually happen. I think that's going to be the linchpin god, maybe that city's es this and that seems to be a little bit tight rope right now too. IT doesn't seem super definitive that studies are embracing china. There's obviously .

this .

behavior. It's not as definitive right now. I think that that looks to happen to kind really canti ze that .

lets get our tin for hats on here for a second. In relation to the biology bet, there has been a lot of action against script down, obviously, authorities, countries took control of, crippled out long ago, china, banning IT, aca, north korea, other other authorities in places kind of tighten their grip on IT. Now, here in the united states, coin base, gotta.

Notice that is a warning basically, and giving you a less chance to kind of respond to the S. C. And this was based on their loan programs.

And on top of that, a number of other crypto crackdowns have occurred. We saw celebrity is getting smack down and getting fines in doing settlements. This is LED sacks to a theory that the united states government wants to break the back of cypher.

Crypto has been a great job of breaks in their own back, with plenty of cypher graphs inside, trading all kinds of china against with F, T, X in front, running and painting the tape, any griff or criminal activity possible seems to have been exploited. Do you think that these two things are in some way coordinated or as a co ordinated effort by the U. S.

Government to destroy until crypto as an offer for the us. Dollar, while the U. S. Dollar is dealing with .

these Prices effects? Well, there's really interesting article that was just publish on the sub stack by nick Carter, who I guess a guest rider on Michelle as sub stack of parise. This a follow to an article he wrote six weeks ago where he laid out the an Operation by the by administration called the Operation choke point, which made the case that the mini ministration was quietly attempting to ban cyp to.

And now, you know, a month later, there's all these things that are all these steps of the administration is taking to go after crypto u and he know he lays out a bunch in a bullet point list. So the c announce the lawsuit against cypher infrastructure company paxos cyp to exchange, crack and sell with the sec sec chair guns are openly labeled every cyp to asset of the bitcoin of security center coming on environment and public works held a hearing land basing bitcoin by administration proposed a bill that singles out cyp ominous for owner's tax treatment. New arcata ney general declared red the syrian, which the second large script asset of security.

That's a huge change, by the way. S, C, C continues indicator protection efforts by doubling down their time to p block at a spot packs in etf, occ, lcr, pto bank protegees application for a national trust charter expire and then the c just sank in based wells notice. So I think is hard to to argue that there isn't a concerted effort now to crack down IT on crypto by a wide variety of government agencies and authorities, starting with gangs, or at the S.

C, C, who seems incredible hostile to cripp down. So now the only question is, is this correlated with the stress that the banking system is under ours is just a coincidence and that I don't know, but I think the argument apology would make is that at the same time they're going to deflect the dollar, are going to make IT harder for you to find an off rap. And he actually brought up a historical example that wasn't aware of, I think, is called the executive water six to one, which is fd r way back in the one thousand nine hundred thirties, actually had an executive order that confiscated all the goal private goal billions in the country.

And they seized the goal billion, making the accusation that private citizens were holding too much gold. So in event this is the theory, I don't know whether it's true or not. IT could be a coincidence to mah.

You think that this is correlated in anyway with uh, the crisis or is just the fact that fg x bw up and all these other things blow up and the public is really upset that they lost a lot of money on this and the c has got ta cover? Be a little bit more active instead of reactive when IT comes to dealing with the crypto losses that consumer said. That's the latter.

I mean, I think that there is a rumor going around. I don't know how truth is that F, T, X was days away from getting a critical approval by the sec to actually even further legitimized their U. S.

Exchange before they went out of business. So I think games lor had to pay IT very hard for at a minimum being very pro F T ax. And there's all kinds of stories about his interrelated ess with sam and his family, the very anti bit or anti crypto in general.

That's clearly happened. But look, I think that this is like a lot of tin heading, which I don't think is very productive. If you look at the total number of non zero bitcoin wallet addresses in the world and let's be extremely generous and say it's a hundred million, there are still seven billion people in the world.

And so I just think everybody that tries to speak about the fragile ity of the U. S. And worldwide king system is right. But in that part, I think is quite lusted in, unemotional. But every time they try to connect the bitcoin, they sound like a crazy person because they just talking their book.

And that is exactly the case, by the way, with the kid nicaro.

And the best example to demonstrate this is in all of this chaos, if bitcoin or cricket assets in general, were truly a legitimate of friend and salvation from U. S. Dollar for germany in all of this stuff, why is in bitcoin, at least that thirty five thousand a coin right now, it's barely above twenty eight thousand.

IT really hasn't moved that much. And I think the real answer is that most people in bitcoin are not trying to hedge their existing fea currency exposure. They're just picking off people in retail.

And you trading this thing, I mean that I think explain how else you explain an asset that is not absolutely ripped in the face of all of this terrible news about the financial system. And I think the answer is because it's still a called the sack of users. It's not broadly available, not broadly adoptable, not broadly used.

I I still believe that is valuable. I was the earliest proponent of bitcoin. Two thousand love IT yeah, you does not.

Well, ve so I believe that there's a place for one in once portfolio, but I just connecting these thoughts misses the point. And I think the point is much, much bigger than a crypto offering. The point is that we have a lot of systemic shocks that are building up in the system. We have broken a ton of the systems that caused the financial infrastructure in the world to work properly, and we are just starting to uncover how they're broken. So I think we need to focus our energy on that and dial down a little bit of the bitcoin maxi stuff, because IT distracts from a really important set of topics that are more inclusive and actually touch seven billion people.

We have to do the clean network. And just to be partly R. A. T. Carter is a career cyp do. He's on his third fund is two hundred and fifty million doa third fund, according to a quick google searches, a partner at castle island ventures and I believe biology believes what he's saying and at the same time is massively in bitcoin and the two million dollars who obviously losing this bed or the ninety nine point nine percent chance and instead that already I think he believes he's doing a service, just like he did believe he was doing a service with covin. So I do not doubt his intent, but I believe is his book is based on this in the two million dollars. Be here.

He's a very smart, good guy. My point is, put this in the who cares bucket and get back to the facts. Freeburg mentioned that we have a dead ceiling problem that's in the office.

Sacks mentioned that we have a commercial ridal est crisis. We just talked about the fact that he didn't raise rates enough nor did he cut enough. So were in this weird middle ath that j pal we're talking about. So those are the facts on the ground that I think we should focus on because those will have implications to how people can borrow, start businesses, capitalize discussts. That's a big problem.

I guess the moral hazard comes up sex and the critique I think, uh, that people have had of you, you know focusing on bank bailout xetra has been you have been anti bailout and now, hey, maybe back stopping the deposits, not back stopping the bank. The shareholders lost. You very clear about that.

But let's talk about moral hazard here for a minute. IT. Are we started .

of getting fail? Say I was your not.

I just clear, say you're not. I'm saying this critics, that people out of you, so i'm giving .

you a chance to address why?

Why are you giving him people's critics of him? nobody.

Because I want him to talk about the of other people. 嗯， OK.

I was new .

york times .

in everything.

Let me jump in and and disqualify. I was really clear that SBS shareholders should be wiped out. Their bondholders ers should be wiped out. Their management stock option, we wiped out.

In fact, if IT turns out that they shouldn't known the thing was about to go under, I think there's stock sales to be caught back. So i'm not a favorite bAiling out sv B. I don't care about S V B.

Yes, of course. Now let's do that for commercial real estate.

No, the question is what you do with deposits and depositors. I think there is a real debate about how you treat deposits in a banking crisis. And I think there are two views on that.

There is kind of an old fashion view and then there's kind of a more modern regulatory of view. The old fashion view is that if your money is in a bank and that bank goes under and you know you're over the F, D, I, C, M out, you lose your money. And we need people in the system to lose their money.

Because I create discipline on the banks. It'll make those depositors do a Better job shopping for the right bank. That's kind of what I ve called the old fashioned hard line view. There's a more modern regulatory view, which is that, listen, the typical depositor, even a fairly sophistic ted depositor, like a small business or even a high newarth individual, they're on a position to evaluate the baLance sheet of these banks. How do they going to figure out if there's like toxic assets that are hidden on the baLance of regulations?

Didn't see a bank and a lot of these banks.

you don't really get that much more moral hazard by putting the a poster on the hook for that. Remember, the manager in the bank already is penaloza severely by losing all the so trying to get to .

before after and interrupted me, i'm trying to get to the bigger moral hazard picture here, which jon fuck you before you each the point i'm trying to get to this, should commercial real estate, should that be built out? How should society look at that next car that you are saying is gone to tip over? How would you handle that? I should.

They do. So the modern illora is, when you open a bank t you shouldn't have to think about the best baLances. You just want to to be safe. You don't want all the brain damage.

And I look, I think this a lot of merit to that argument, as IT turns out, and have been going to look into this, how much would have cost the system to just fully ensure deposits? IT turns out that we have about seventy and a half trillion in deposits in the us, almost eighteen trillion, and one of the most numerous al here as well. We will cost us eighteen trillion to basically ensure all the deposits.

That's not true because that's not first of all, ten trillion people is already ensured under fdc. It's only about seven and a half to eight trillion. And that's .

left this is left.

rita. And so isn't IT .

shocking the enumeration y of people that .

make these claims were actually breaking down the numbers.

So the leading, prominent of the theory that we should just basically not bail out, but back stop the deposits is bill action. And he's been making, I think, a pretty compelling case that if you don't protect deposits at small banks, all the money is gonna flow to the top four banks that's ready for what happened.

We're watching IT happen, right?

So i've been trying to figure out how much I would actually cost us to do that. And what I realized is that it's not eighteen trillion and it's it's eight trillion. But by the way, that amount of deposit is not the risk premium.

So if you look at fdc at the end of last year, there was about one hundred and thirty billion that have been paid in to the fd I C, fd. By premiums paid by these banks. So another words, the insurance premium paid by banks is about one point three percent.

So if you were to now additionally cover the whole thing, all the deposits IT would be another roughly hundred billion of premiums paid by these banks. That seems very manageable to me. actually.

The question is, is the fd I C fund adequate? And I think we're about to find out IT may be the case that a one point three percent ensures premium grossly. You understated the true risk of putting your deposit in a bank, and we're about to find out that the face is an adequate, I don't know the ins.

So I think this boiled down to the profitability that an equity shareholder of a bank expects of them. And to your point, is IT viable for large jesus to guarantee a hundred percent of their deposits. absolutely. The implication of that would be an enormous hit to their short term profitability and they return on invested capital. IT would just take a hit.

And so as a result, the stocks of those banks would fall pretty precipitously, which would have a real negative impact on the executives in the CEO of those banks and the shareholders that owe those bank equities. So I think ultimately, they will come down to that decision, which is that if you do want to protect the positive in the american banking system, one hundred percent for every dollar, and do IT in a simple way, IT will come at the sake of the equity holders of the banks. And if you're willing to make that trade off, then you can guarantee one hundred percent of the deposits. If you do not want to make that trade off, then the equity holders will still retain more value, then they would other's and freeze.

G, we've seen a couple of examples of the market, the free market, looking at the situation and making new products and services. Wealth t mercury bank both talked about load balancing across twelve accounts, three million dollars. So that would make some people who add over two hundred and fifty k just instantly be back stopped and insured .

and hand where you know .

there's discussion of um we I talked about last weekend. Why don't you just have evolved where you pay a bank to hold your money safely? I got a tn responses from all in fans pointing out multiple banks and services that have been trying to do this and also cyp to solution.

So is there going to be a free market solution, you think? Or we're starting to see them emerge that maybe covers this gap a little bit, freeze ing. And then what you think just generally on, should we back up the banks and the depot after the banks.

the depositors, to be clear. So if we just quickly analyze the function of a bank, they loan money too, either residential real estate buyers like home monitors, or commercial real estate buyers or businesses that needed, I think the majority the capital goes to residential real estate, and if they can't loan enough money.

they typically buy bonds.

right? They buy other people's loans in the form of bond security like treasuries or asset back security, rather things like that or more each back security. So they used the cash to make those investments to to make those loans, and then they obviously earn a return on that.

No, I think we ve talked about this in the past. The thing that biology, I think, has misstated and and IT would be good to have a conversation with him about this publicly because I I have listening to some of his interviews in the last couple days. He says the banks are they don't have the money that you the depositor thinks that you have.

And so what he's saying kind of implies that there is no money, that there is no asset value there at all. He used the same bank man freeze and F, T, X as an example that the money that was given to same bank man fried exchange fund was used to buy assets that then very quickly declined in value by ninety nine percent. But he held them on the. Had a one hundred percent and then he reinvested the .

money and all sorts of other .

different stuff. And in the case of the loans made by banks and the assets, the day as a result hold, the value may have dropped by twenty five percent in kind of the worst case, which is, you know the silicon valley ten year treasury bond scenario where they bought you know all twenty billion dollars for the treasury bonds and and you know they took a big hit on that. But IT doesn't mean that there's no asset value.

IT means that the value has declined. And typically, there's a buffer between the asset value that the banks are mental hold and the deposits that they go back to their customers. And if that buffer y gets succeeded, then the bank is technically have negative equity.

And if all the, you know, depositors said, I want my money back and they went and solve those bonds into the market, they wouldn't be able to make the depositors hole. But IT doesn't mean that depositors end up with zero IT means instead of getting one hundred cents on the dollar, they get ninety three cents on the dollar or eighty eight cents on the dollar. And IT would require an orderly dissolution of the bank's asset, selling those bonds into the market to generate the cash to pay back the depositors. So the reason we've seen this kind of this fed vertical Spike number is because assets are moving so quickly, depositors are moving their value so quickly from one bank to another that in order for the banks to make the cash available to, they have had to borrow from the fed and then they're going into the market doing this kind of they should be doing this orderly asset sale, the bonds to generate the cash to pay back the fed.

So just musical chairs, money, more money, causing these problems as musical chairs. And if the musical chair stop, then we don't have this problem.

correct? So if people stopped moving a deposits around, then you're write, the banks wouldn't need to borrow money to give the posters their money and then go do the work .

of selling the bonds in the market.

People are moving their .

money around because of the I M. So here so you in and this holding s so does nothing to say that, right? Yeah.

thanks. Here's the jack. You mention this case that you hear a lot people saying the one you just here are two and half million dollars and break them up into ten accounts what people are doing yeah well, look, it's not feasible when you need to run a big payroll at the end of the month. You've got payables administrative vely too complicated. And by the way, what if you accomplished doing that haven't solved anything so and accomplish .

for the start up and have a comped has given their prediction, the system.

why won't just raise fd I C, the two and half million, or have fd I C be based on the number of employees in your company or allow a higher class, a business class of F, D, I C that goes up to, yes, exactly of ten. And in exchange, the quip process has to be that the bank can put out money .

in risky assets.

Why is this is so obvious? Highlight that. Because that is what an insurance under writer put aside E, F, D, I, C. And put aside banks and put aside the government's role. Yes, that's what an insurance underwriters job.

They would look at the volatility in the pricing on the bonds that the bank holds, and they would determine ultimately two things, probability of loss and severity of loss. And the probability is how likely is that, that you end up in negative equity and that you have people requesting money and you have to sell those bonds in the loss very quickly. And then the severity is how much would you actually is.

So if if you know the fed raises raised by three percent and your entire book is tied up and ten your bones, you see a twenty five percent decline in the value of your born portfolio. That as bad as a guess, if you start with the ten percent buffer, now only have eighty five percent of the money you over a depositors, so your loss is fifteen cents of a dollar. So the insurance company would say, what's the probability that have been happening? How much should we underwrite for? What should we charge a premium to do that? And that's ultimately how the rates would get set.

Now the problem with most insurance models around this sort of a problem, that is that these are the extreme tail events that have never happened. And so the insurance to saxes point is super leading up to the extreme taillevent. And then everyone's like, oh my gosh, we underpaid for so many years.

We didn't realize our severe the losses could have been. We didn't realize how significant this was gonna. And as a result, you now see this kind of in effect because people like, oh my god, shit had happened to them that could happen to me.

Let's all sell. And IT gets worse and worse and worse. And so you know, the real rate for the insurance going forward will now have to take into account this massive risk.

But the game theory problem is a sexy point out. If you just and share everyone, the custody insurance actually goes way, way, way, way down because now you don't have this money movement problem. And so you know the point is the more you insure at this point, the cheaper the insurance will actually be.

If you're an actual free market underwriter, you know a free market kind of you know, underwriting process, I must think because now the probability of having this bank run goes way, way down and therefore, the custody insurance should go way down. And so the irony is if you actually did and this is getting super technical, but if you actually looked at the statistical model and said, how much is this onna cost to ensure every deposit IT gets much, much cheaper, the higher the the the deposits that you're willing to ensure would be. That's my sense of what the free market would do here. And IT, certainly what I think the federal government should probably think about doing if they are going to continue to play .

a role in that stopping banks. The the net is people started up to right now are doing five to ten banks. I'm watching IT happen. They're doing all these sweep accounts. They're doing multiple accounts.

So the government, if IT doesn't raise the the fdc limit, is basically just creating extra work for everybody, and it's going to be the same outcome. So the people are going on the street will find its own use for technology and how to hack this. And that's what's happening with these services.

Yeah, the old fashion view or the trial view of this, they would say that what you want those startups being paranoid, do you want those starts doing the work of disciplining these banks by moving their money elsewhere if they detect the problem. However, the problem with that is you get these bank runs.

That is, what a bank run is in parts, is people move in their money because they're fearing that the bank is not doing a good job with their long portfolio. So this is why in the less called the olden days before fd I C, we had bank rounds and panic all the time. And that's why F D I C was invented.

So there is a hugely destructive problem that comes along with placing the depositor in charge of discipline the banks. And I would argue that the depositor is not the best person to do IT IT. Is the regulator just a kind of later on what what feeder was saying? I think there's like a criminal market failure with banking in the sense that the depositor or the consumer and the bank thinks they're getting two completely different things.

When you open a bank account or a checking account, you think you're getting a checkbook in ATM card, a place to do payroll run table as a service and maybe you make a little bit of interest the time in your main motivation OK. That's what you think you're going. You're your money, most of all safe because you're not signing up with a service provider have any chance of losing your money.

You're not right. But now what is the bank thing is getting? You know what the bank things is getting an unsecured loan that they can then turn around and invest in whatever .

they want or whatever they law IT is to actually exactly is that told this connect?

And moreover, the way the management the bank is compensated is that they only have to pay back you're a loan. You're deposit basically as they're loan at par and anything they make on a bet that they make without money, they get to keep. They get to keep all the upside. There's stockholders management .

get to keep that and is incentives are are driving this and that's withdraw the risk, in all likelihood, silicon value bank, they were getting two hundred billion dollars with ever percentage point. They got some off somehow the exact incentive.

It's not just that, but the whole banking system creates the incentive. They are highly leveraged. The deposits from their standpoint are leverage.

Their leverage tend to one. So their incentive is to go to the casino and gamble because they get to keep all the upside. And if they lose, IT is basically someone else .

on the hot final watch much.

In early may, the fed will release their investigation into signal bank in S V B O K. Pal said that this week, I think they'll be really interesting to see how much honesty they both put into the report and then whether the entirety of that reporters made available to the rest of us to read. But I think sax has very alliances summarized what's happening, and IT doesn't take a genius to figure out that this doesn't make sense. So the question is, what is the tolerance that we have for changing something that clearly is this characterised what consumers think they're getting and what banks are then doing are two totally different things. And if the fed actually is really, really honest and really lays bear everything that happened, it'll be very hard to not legislation is based on IT and .

your best h swing at a legislative change would be watching month. What is the the low hanging fruit?

What's the up here? Well, I think we've seen this happening in other markets for a while, which is that banks have become, in fairness to them, much, much Better at this management post dot Frank, post great financial crisis. And the result of that is that there's been a lot of emerging private credit markets because most of bank is about lending, right? They're not really buying equity.

They're lending money. There are deter in possession of something, right? And there's been just a massive explosion of private credit.

And IT started in the most obvious areas. IT started in things like C, L, O. S. IT started in assembly security, solar car loans, credit cards, mortgages have equity back deals. So I think the rational answer is that banks need to protect a hundred percent of deposits.

And that if they want to have extra curricular activities, if you will, they need to be able to raise money from investors, put that to work in a really fair and transparent way and then share in the profits between all the related parties that are involved in that transaction. No different then any other rise taking organization. And I think that this is now what we've probably shine a light on is in really odd loops that just needs to get closed in twenty twenty three.

There's such easy ah hygienic changes here put in .

a different way. If you raised money for a liquid hedge fund that had quarterly redemption ons and then violated the L P A and stuff ted into private companies that had ten year illiquidity, there will be held to pay and vice versa.

If you raise money on ten year, a liquid locked up capital on the presumption you are going to invest in startups, and then instead put IT in the stock market, thinking that you could flip IT make some money, you would have violated the L. P. A, in their be held to pay. Similarly, I think what sax is seating is that there is a mismatch of what the depositor, in this case, the investor expects and what the risk manager is doing. And I think that you have to correct that one where the other making abundantly clear that we're never going to sure under percent and deal with that risk or making one hundred percent and deal with the fallout, which is largely about, uh, wiping out a lot of equity value in banks.

L P A equals limited partnership agreement.

Just clarify one thing. I'm not saying that these bank managers of the casino gambling the money. I think they are generally more responsible than that. And what i'm saying is that the incentives created by this crazy system we call banking create a weird and center for them to gamble because they're so highly levered from their standpoint. Your deposits are their leverage, everybody.

But the g sobs because I think the g seps they're so much scrutiny. Y if you look at how well run C D, B A A wells in G P M R relative and contrast them to the sub jesus, it's like night day. And so the other thing that I think we've realizes, who thought that was a good idea to raise the bar on eligibility from fifty billion of assets to two hundred.

Clearly, now that made no sense. IT makes more sense to actually categories ze every bank as systemically important, maybe not globally, but at a minimum, to the U. S. economy. Because these people play a vital function in society, and they were allowed to take a much more aggressive reposition because they were able to love the government to change the rules.

The C. E. O of tiktok, which claims to be in an american company now or an international company, was in front of congress today. His name is show true.

This is the first time he's really, I think, spoken publicly and an extended uh period four and half hours he was grilled and IT was absolutely brutal is the first time i've seen a congressional hearing that was by partisan in a long time and he said that, quote, uh, the bottom line is this is an american date. This is american data on american soil by american company, overseen by american personnel and then was immediately. Squarely when asked if chinese employees, including engineers, have access to this U.

S. data. And he said, this is a complex subject. Over and over again, he was evasive, and this did not look good for tiktok. The question .

now becomes.

does IT become divested and go public, or does IT get shut down sex? I think his .

goose was crocked as soon as they asked the question, in preparation for this hearing, did you consult with any member of the ccp? And he could not just out right say no.

So his goose was could soon he could say.

no, what think about things where IT is by partisan. I mean, there there is so much outrage and anger at this. I think that they should let the company diverse IT. But I think IT is diversity shut down for tiktok. Since we're not communist here, I think they should be given the chance to fully divest to an american own company.

But look, I just wish that there was as much bipartisan consensus and outrage directed, not just at chinese spying of americans, but on the american deep state spying on americans, because we just had hearings showing that the american government conducts elaborate spying Operation, surveilLance of americans on social media. This is all of you on the tour files. And we got certainly no bypassing consensus on that.

Republicans were outraged, but democrat tried to portray as some sort of spp. Between trump and Chris tega. I mean, all they wanted to talk about.

So I would like to see this problem comprehend vely addressed. And that means, I think tiktok going into the hands of an american company. But I also would like more assurances that american companies will not be working with the deep state to spie on us in .

from and Donald trump, who are two people you'd never invite a dinner party, free hug. What are your thoughts? Is gonna divest? Should I be forced to divine being intellection honest about IT? What are your thoughts on tiktok in amErica having i've .

show this in the past, I think they're probably going to have to spin this thing out. And if they hold any equity, if the chinese parent company holds any equity interests, that will probably be nonvoting chairs and they'll be a Mandate that the majority, the shares and some degree of oversight.

That's the right thing to do from a national security issue for amErica to force them to do that.

I don't know. From a national security point of view, I really don't. I don't have an opinion. National security and tiktok, I know I i've i've always thought that tiktok was a really what's the right word like it's like a firefly for you know, chinese invasion and IT feels like you know it's a very easy kind of target for, I think, what is generally a big kind of social consciousness right now. So you know whether or not there's actually like, uh, some national security points if if they were and pretty sure that national security person would have stood up and said we need to stop the staying.

I'm not sure i've heard that publicly.

but I， but I, but I I I will say like the my point of view from like just seeing the political behavior is that they are probably going to anded that these guys been this thing out to U. S. Investors and and that they have you know don't know any that the chinese don't have any equity or management oversight interest in .

IT to math in china itself, the chinese government does not allow kids to play video games during the weekend and only three hours on the weekend. They're using apps like reach out to dictate social score and social behavior, whether smoking on a train or not, paying your bills.

And they are saying they will not divest.

but anybody who is an investor in the company that had a chance to go public for tens of billions of dollars and eventually take on, and people believe that this is a viable competitor to facebook and instagram, this could be a company worth ultimately hundreds of billions of dollars. If you are an investor in china, you would want to ipl, you would want to get liquidity. So if they are refusing to sell, what does that tell you as a market? Participate participate in somebody who's been a capital allocated for over decade?

There is bigger problems in china than even tiktok us represents for them, I think is probably what that means. So it's a pretty bad tale.

I don't think devastate is a real option because when you think about the details of that, how will the government be satisfied that the code base was separated allegiances, that there was no mail where serb tish ously planted? How do you actually prove all of this to a degree that satisfies a legislature? So I think the pound of flesh that they want is more easily and more salacious, sly, satisfied by shutting the thing down.

So if if I had to bet on what happens, I bet more on that. I didn't think, take talk to a very good job. And I think that there are some .

they were terrible today.

today. And I think that there's some real issues around how much control does actually flow back. I don't think that IT was definitive. He needed to be much clear and add that this was an independent business that didn't have back doors to china 的 C， C, P, to a peace congress.

He didn't do that. No, he was like, I have to check in on that. I'm not sure I think .

he was a little bit of the exact office that actually saxes right. Like that first question was just the death blow right from the beginning. It's like this is not going to go in a good place because they should have been able to see that that question was gonna get asked. And you need to have that ask and answer, pho sophy, where the only answer is no, the only answer you could have given is no.

And the fact that he was unable to say that IT was a bit of a father complete as soon as soon as I was in my mind, I was like, this thing is getting shut down because I there's a shut down yeah there's no diva state plan that can be technically audited in a short amount of time to appease these folks. They want a pound of flesh. And it's separately the bigger issue that I think you have to deal with this.

What does that mean for how other governments may be pressured to act who wanted be on the through U. S. cap? And I think that that's a question because.

Bike dance in tiktok have presents beyond just china in the U. S. A.

Third question is, how does the golden vote get used on the bike transport? And what do they do? And do they even want this thing public? Explain golden vote.

Essentially they'll decide what happens to that company. And they have that in alibaba. They have that I think a tent. I think they have that a bike ten. So the chinese government has a very strong hand in the direction of these business.

And in the final point, he said there is a secondary APP that tiktok has called cap cut, which also is enormously popular in the united states, which is yet another potential backdoor for privacy or spying by and whatever the U. S. Congress wants to pin on them.

So I think it's a very complicated moment for that business and their U. S. Asset sex.

It's pretty clear the C, C, P is making this decision. If they decide let IT burn, let IT get kicked out the united states. What does that do in terms of game very between the two countries and going forward? Because the obviously don't resetting cate, we're not allowed to have google, twitter, instagram, whatever in china. So is this just .

on me decision you saying the C, C, P is making?

Well, the ccp has the golden vote. It's their decision to divs or not divest chamois ve. They were not divest.

I believe they were about the saying that they were not going to have the choice. I I don't see what decision to C.

C, P, S. And not a diverse, I think it'll be shut down. I think they're getting kicked out .

of the other states. Okay, do.

But you believe they gonna do this sex? I'm saying that's what I would support.

So what are you?

Things might be, right? I'm not sure. But I I think they should be given the chance. And if you truly can't move the servers to the united states and fed the code base, I feel like you could I think you could have an acquired figure IT out, you know, vedda base, move the data centers, make sure there's no back doors. I think it's not impossible, hard, but not impossible.

okay. So let's go with the scenario that IT gets kicked out of the united states to shut down. Are there any second or third order impacts?

Yeah, as rushes up the tension. Try in the U. S. In china. But already we're ready there.

Yeah, we're ready there. No change or listen, this has been an amazing episode. Oh, a champ. Did a your 3d rocket company make IT to space？ I saw they had a nice a little lift off there.

Thank you, Jason. I just wanted to give a shout out. This is like while all this chaos is happening in the world is amazing to see pretty incredible engineering.

So last night, we did have a successful launch. So relativity has a eighty five percent three d printed rocket, which over time we wanna try to get to ninety five percent. But it's the fuselage, is the engines.

IT brings the cost of space flight down by an order of magnus de IT is a hugely disruptive idea. And so what they tried to prove was that they could get this thing into space, and they accomplish a lot of goals. They got past max q, which is sort of the point of which the atmosphere ic pressure is the strongest on the fuselage.

So we proved structural integrity. We got to main engine cut off. We at stage two separation. So a lot of really important technical milestones achieved. IT allows them now to unlock a bunch of contracts that allow us, Frankly, just to keep going in building. There's still a lot of work to do from here.

We're building now the next generation rocket, which is called terror, and rocket engines, which can take, instead of fifteen hundred kilograms, about twenty thousand kilos. So enormously proud to have been around this journey. My partner, jays, been relieved, the key person on IT. But I just anted to give a huge chat out to timeless. And the team at relativity is super, super.

super cool. But they put just how access to spaces being democratized in. The Prices are being lowered so dramatically, what's the impact that's going to have ultimately free burger you think on humanity? I mean, obviously going to mars is this incredible feet technologically and just mind blowing, but what what do you think the the net result of all this space activities is going to be for the human condition in the species?

I mean, I think this viBrant community of startups and money coming into the space right now, I do think all these guys are going to have to, in order to gain wider spread capital markets attention like elan has had to do a space ex are gonna have to find business models that have kind of new turn viability that don't depend on government contracts like stink, like starting like here. And so I think that's the key question IT.

Obviously, these are very capital intensive businesses. They have very long horizons to hit their milestones. So they're certainly capital available in nearly stages to make that on whether nothing get these milestone. But but you know, the broader kind of attention in capital markets is going to come from these things, building real kind of businesses that generate value for consumers and markets. You know, one of the things .

that I think can unlock .

opportunity for this market overall is low energy. You, if we can get below call IT one cent to three cents killed an hour of power. Call IT one CTO killed hour power. I forgot the exact relationship. You can get very cheap um you know hydrogen en and oxygen fuel sources. And so you know the it's funny if you actually play out the the scale factor for space for the space industry, much of IT at at scale will get driven by the cost of electricity. So it's another reason why there's maybe, I think, a pretty tight coupling between the cost of power and ultimately the vibrancy of this market.

You mention something important that the other key thing that we proved was that this is a pure metal lox engine. So C H, four and liquid oxen and IT was not just stage one, but also stage two, which is unique. The only other folks that have tried to prove that you could have multi stage metal lox is china, and their most recent launch failed. But IT highly simplifies the engineering problem at hand, especially the ground Operations and what not, and sort of like filling these rockets and making them viable. So that was another reality.

Big miles. So the producing of that fuel freedoms g requires energy. If that energy was cheap, we will be cheaper to making process that fuel.

That's right. Yeah, it's a pretty, pretty direct time and particularly scale manufacturing on fuel that would be used in these rocket systems and in power Prices here on earth. So even as we get power Prices down, either through scale, renewable or a diffusion or some other kind of new technology, they are or or nuclear fission or something, then the cost of in a fuel, the study space program goes down.

And that ultimately, I think the real question everyone asks is how do you get away from just being government services businesses, which you know have a low multiple uh in markets and obviously you know high dependency on one or two key customers? And how do you actually get private markets, uh private market products moving? So tourism obviously makes a lot of sense. Travel you know around the earth in twenty minutes to something or you know some people have talked about mining or colonies and you know who would fund that real estate? It's unclear right now what the .

ultra traveling is. A wild one. Yeah, i've talked to you on about that. But the idea that you could have a rocket ship take off from texas and then be in tokyo like more minutes later is.

I can only, I can only speak for myself, but I would really like to visit your in a river.

right? Everybody.

look at the players. Got players for .

players.

Look.

his two layer.

LED needs color pants.

No, can you tell.

do you have a stylist, an actual person you pay?

Now, can you please put the picture of Steve ban and where .

he wears the multiple? You could stop for next time. Acting me, it's really weird.

Oh, abandon. He thinks your adventure, a vulture, a capitalist or something.

he's been attacking you people are on twitter. I think on this podcast, I think, yeah.

you seem to have made a lot of a lot of new friends on twitter lately.

When you pass around half a million followers, basically what happens is you become a politician. You will that there will always be a fringe element of people who need to manage their anxiety by venting. And that's what you're feeling.

You'll live that now a million uh you know, followers, two million, ten million, whatever. There's always gonna. A small percent of J, K doesn't know this because he has mostly bots that are people.

This is what IT is. Your one percent or less than one and number goes up. So I would ignore IT. Don't care, don't worry about what user, seven, four, seven feed the break do. Don't care what seven user.

seven, four, seven, eight, six.

And looking forward.

seeing on third for the rain man himself, David sax, the sult of science of principal ic attacks our power. Do you freedoms? G and the host with the most gonna going do the host with the most. I'm adding something the host with the most was making me the SHE. So leave tempo with hato and .

you in world's best, genuine lector.

I am the world's greatest, guess greatest house guests. If you need a house guests to look at your house, where if you need a house guest, i'm ready to come and make IT a good time. Absolutely the best .

you and me you are.

enjoy.

拜拜。

your。

World, man.

We open sources to the fans, and they .

have just got crazy.

We should all just get a room and just have one big huge org because like sexual attention and to.

我。

一定 只。

给我。